JPMorgan's commodities team has abandoned its baseline forecast for the Iran war's trajectory, the first time since the conflict began more than six months ago. Natasha Kaneva, head of global commodities strategy, said the bank no longer knows how to model the endgame, after the oil and Treasury redlines it expected would force a deal were crossed without producing a clearer exit strategy. Saudi Arabia's East-West pipeline has been shut down after a drone attack, Houthi forces have expanded control in the Red Sea region, and the Strait of Hormuz remains severely constrained. Brent crude trades near $105 a barrel against a fair value estimate of $90, implying the market is pricing in 4 million barrels per day of additional supply losses. Global inventories have fallen by 555 million barrels, far less than the 1.4 to 1.6 billion initially projected, with demand destruction absorbing much of the shock. Asia is bearing much of the cost: East Asian importers paid an extra $49 billion over six months. The bank warned that the remaining cushion is temporary, and absent a diplomatic breakthrough, market adjustment mechanisms face mounting pressure.
Six months into the Iran conflict, the strategists who map oil markets for the world's largest investment bank have reached an uncomfortable conclusion: they can no longer forecast how the war ends.
Natasha Kaneva, head of global commodities strategy at JPMorgan Chase (JPM), told clients Thursday that her team has abandoned its baseline scenario for the first time since hostilities began. The admission marks a striking reversal for a desk that entered the conflict with a detailed playbook of economic redlines it assumed would force Washington to the negotiating table.
"For the first time since the start of the Iran conflict, we don't have a baseline view," Kaneva wrote in the note. "We simply don't know how to model the endgame."
The bank's original framework assumed President Donald Trump would be compelled to reach an agreement reopening the Strait of Hormuz sometime in June, once oil climbed past $100 a barrel, gasoline approached $5 a gallon, and 10-year Treasury yields breached 5%. Six months later two of those three lines have been crossed — Brent is back above $100 and the 10-year Treasury yield breached 5% this week — yet the exit strategy has grown murkier rather than clearer. Gasoline is the exception. The national average stands at $4.43 a gallon, a record for this time of year, after peaking near $4.56 in May without ever reaching $5.
An interim deal to reopen the strait did materialize in June, but it collapsed within weeks into renewed fighting that has intensified through September. Brent crude is trading near $105 a barrel after flirting with $110 earlier this week. The 10-year Treasury yield crossed 5% for the first time since the war began, and seasonally adjusted pump prices sit at record highs.
Diesel has become the most acute pressure point, with prices above $6 a gallon and inventories at record lows. The fuel's scarcity ripples through supply chains, raising costs for trucking, agriculture, and manufacturing.
Supply Infrastructure Under Siege
The physical infrastructure underpinning global crude flows is deteriorating on multiple fronts. Saudi Arabia shut down its East-West pipeline after a drone attack launched from Iraq damaged the conduit, which has capacity to move 7 million barrels per day and was supposed to serve as a critical bypass while the Strait of Hormuz remains constrained.
That removes the largest of the world's overland workarounds. Saudi Arabia's East-West line, the UAE's Abu Dhabi pipeline and Iraq's Kirkuk-Ceyhan link together can carry roughly 9 million barrels a day — under half the roughly 20 million that move through the strait in normal times.
The shutdown has not cut Saudi barrels off entirely. The kingdom has been offering additional cargoes to Asian refiners through ship-to-ship transfers just outside the strait near Oman's Sohar port, letting shuttle vessels avoid the risk of Iranian attack on the inbound leg. Transfers in the Gulf of Oman have climbed to 2.7 million barrels a day from 1.5 million in August, according to the ship-tracking firm Kpler. US Energy Secretary Chris Wright has called the pipeline damage a "brief and temporary interruption" measured in days, but Rapidan Energy expects Saudi crude exports to fall by 400,000 barrels a day this month and warns the risk is skewed toward a larger disruption if the outage runs past September.
Houthi militants have advanced in Yemen, seizing a major port and consolidating control over the eastern shore of the southern Red Sea, potentially tightening their grip on tanker traffic. Meanwhile, Iranian-backed Iraqi militias have kept pressure on Saudi energy assets.
In the Strait of Hormuz itself, daily transits remain in the low teens, a fraction of the 120-plus vessels that moved through the waterway before the conflict. Iran's Revolutionary Guard continues to threaten regional shipping.
"The market is on edge, in our view," Kaneva's team wrote.
The escalation has not been confined to the Middle East. Ukraine continues to strike Russian refineries despite Trump's claim earlier this week that Kyiv and Moscow had agreed to halt attacks on energy facilities, adding another layer of supply uncertainty.
The Price Math
JPMorgan estimates that Brent's fair value in September is roughly $90 a barrel, based on current supply and demand fundamentals. The gap between that figure and the market price near $105 implies traders are pricing in the risk of approximately 4 million barrels per day of additional supply losses, on top of the 10 million barrels per day already disrupted.
The bank's model assumes every 1 million barrels per day of lost supply adds about $4 to futures prices.
The Centre for Research on Energy and Clean Air, a research group, found the pressure has concentrated in refined products rather than crude. Diesel has averaged $161 a barrel on wholesale markets over the past six months against a pre-war expectation of $101, a 59% premium that has barely narrowed: diesel sat 57% above pre-war expectations in March and 65% in August, while the crude premium roughly halved, from 50% in May to 22% in August.
| Metric | Current Level | JPMorgan Fair Value | Implied Additional Disruption |
|---|---|---|---|
| Brent crude | ~$105/bbl | ~$90/bbl | ~4 million bpd |
| Gasoline (US) | Above $4/gal, record seasonally adjusted | N/A | N/A |
| Diesel (US) | Above $6/gal | N/A | N/A |
| 10-year Treasury yield | Above 5% | N/A | N/A |
| Strait of Hormuz daily transits | Low teens | Pre-war: 120+ | N/A |
Note: Figures reflect market conditions as of September 17, 2026, based on JPMorgan estimates and market data cited in the analyst note.
If Middle Eastern flows remain at current levels through year-end, the bank projects fourth-quarter and December 2026 prices could run $7 and $8 above its current forecasts of roughly $80 and $78 a barrel, respectively.
The Inventory Cushion
Perhaps the most surprising development of the war has been the resilience of global oil inventories. JPMorgan initially projected the conflict would drain between 1.4 billion and 1.6 billion barrels from global stockpiles. Actual draws have totaled about 555 million barrels — roughly a third of the original estimate.
That shortfall has a dual explanation. Global oil demand has run more than 4 million barrels per day below year-earlier levels since March, as high prices suppress consumption. Simultaneously, US producers have ramped up output of both crude and natural gas to record levels.
The demand destruction has effectively absorbed much of the supply shock without forcing inventories to catastrophic lows. Global stocks stood at around 8.4 billion barrels before the war; a 1.6 billion barrel draw would have pushed the system dangerously close to minimum operating levels.
"In short, there is still enough dry powder to keep prices contained — for now," Kaneva wrote.
That cushion is eroding, however. Military operations, hospitals, and manufacturing require oil regardless of price. Government and commercial stockpiles in the US have fallen to levels that make further large-scale releases politically and logistically difficult.
Meanwhile, Chinese demand is reaccelerating. With diesel prices at record highs, Chinese refiners are aggressively processing crude into refined products to capture unusually wide profit margins, adding a new source of demand pressure.
Who Bears the Cost
The shock has been global, but the bill has landed unevenly. East Asian importers paid an extra $49 billion for seaborne crude, refined products and LNG between March and August, second only to the European Union's $54 billion, the same analysis found. Japan, which sources about 95% of its crude from the Middle East and ships roughly 70% of that through Hormuz, absorbed $10.4 billion of it — equal to 0.25% of GDP — and Taiwan $2.8 billion.
| Importer | Net extra cost, Mar-Aug 2026 | Share of GDP |
|---|---|---|
| China | $31.7 bn | 0.17% |
| India | $14.4 bn | 0.38% |
| Japan | $10.4 bn | 0.25% |
| Taiwan | $2.8 bn | 0.35% |
Note: Additional cost of seaborne crude, refined products and LNG imports against pre-war futures expectations, March to August 2026, net of each country's extra export earnings.
Relative to the size of their economies, the burden fell hardest on poorer importers: the typical low- and middle-income country paid about 1.0% of GDP, against 0.45% for the typical high-income one.
Japan has not waited for the war to end. It released about 80 million barrels from its strategic reserves in March — the equivalent of 45 days of supply — as part of the International Energy Agency's record 400-million-barrel coordinated release, then drew down a further 20 days of national stockpiles from early May. Its trade ministry said procurement routes that avoid Hormuz should cover more than half of supply by May, and that the country's oil supply is secured beyond the end of the year.
Washington's Dilemma
The deteriorating energy picture lands as Washington faces midterm elections less than 50 days away, with Republican control of both chambers of Congress potentially at stake. Trump told Axios in an interview Thursday that he is approaching a decision point on whether to restart major combat operations against Iran or pursue an exit.
"I have a big decision coming up," Trump said. "Do I want to go in and annihilate them or do I not? It's a big decision. Anything could happen with me."
The president is scheduled to meet Chinese President Xi Jinping in Washington on September 24, a session that JPMorgan analysts flagged as a potential inflection point. Without a diplomatic breakthrough at that meeting, the bank said, the assumption that Middle East supply disruptions are temporary "is becoming increasingly difficult to sustain."
For now, the market's ability to absorb the shock has masked the severity of the underlying imbalance. But the mechanisms that have kept prices from spiraling — demand destruction, inventory drawdowns, and record US production — each face limits.
Unless a major diplomatic opening emerges, JPMorgan warned, the global energy market's adjustment mechanisms will come under increasing strain. The alarms are not yet sounding at full volume, the bank concluded, but complacency would be a mistake.
